Figma IPO Tops $58 Billion Valuation: Is It Worth the Price?

Key Points

• Figma is an innovative software and AI company putting up impressive business results.

• The stock's IPO valuation was conservative. A buying frenzy has launched Figma's share price to the stratosphere.

• Investors should understand the risks before they chase the stock.

• 10 stocks we like better than Figma ›

Software company Figma (NYSE: FIG) burst onto Wall Street as one of the hottest initial public offering (IPO) stocks in recent history.

The stock soared 250% on its first day of trading, topping a $58 billion market valuation. As of this writing, shares of Figma have continued to show strength, potentially pushing even higher.

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As exciting as the stock's price action is, it's wise to step back and think through things. Why has Figma's stock price gone wild so soon, and is the stock worth the prices it has quickly risen to since it began trading?

Here is what you need to know.

Image source: Getty Images.

An emerging AI superpower

Almost every business needs a great website or smartphone app in today's world.

Designing these things is often tedious. Take building a website, for example. The process traditionally involves consulting with a specialized individual or group. You give them your vision, your ideas, and they try to build that for you. Getting to the finished product often involves multiple revisions, meaning more time and money along the way. Even when finished, it's usually just good enough, and not the ideal vision you initially dreamt of.

Figma's artificial intelligence (AI) and software tools enable anyone to design, build, and launch websites, apps, and other digital interfaces and products. Users can design and create using simple features and AI prompts, and collaborate with others along the way -- no coding or programming experience needed.

The company has become a tremendous success and a potential threat to the creative software giant Adobe, which helps explain why Adobe tried to buy Figma in 2023. Today, Figma has 13 million monthly active users, including 95% of companies in the Fortune 500 and 78% in the Forbes 2000. Figma's users also have a net revenue retention rate of 132%, indicating that customers use it more and spend more over time.

Why Figma's stock price has gone wild

Investors can't get enough of Figma right now. According to Bloomberg, the IPO was over 40 times oversubscribed, meaning there were far more orders for shares of the IPO than what was available. IPO shares were difficult to get for most, so when the stock began trading, there was already a frenzied investor base waiting to get in on the action.

The high demand results from a culmination of things. First, a strong stock market near all-time highs has boosted investor sentiment, creating a healthy backdrop for IPO stocks. Additionally, Figma is a highly regarded software company with AI upside, which only further fuels excitement surrounding the stock.

Next, the IPO valuation may have been too conservative. The IPO valued Figma at $19.3 billion. That is less than the $20 billion price tag that Adobe agreed to pay for Figma in 2023 before the deal fell apart under regulatory scrutiny over anticompetitive concerns. Figma's revenue was $504 million in 2023, which grew to $749 million last year, and may top $1 billion this year.

Figma's explosive market debut makes total sense when you consider the company's growth since 2023, as well as the current sentiment in technology and AI stocks.

But is it worth buying into all this hype?

Figma's valuation may have been conservative at IPO, but that's no longer the case after the stock's massive rally. Shares now trade at roughly 54 times estimated 2025 revenue, making Figma one of the most expensive stocks on Wall Street. As promising as Figma's future looks, it's becoming fair to wonder how much of that future upside the stock price now reflects.

Buying into a red-hot IPO stock can be risky. Sometimes, the stocks can cool off after the hype fades, and investors start looking ahead to the company's first few earnings reports to see how the business is performing as a publicly traded company. Some popular technology IPO stocks from recent years, like Airbnb and Snowflake, initially surged but eventually faded and have yet to revisit those highs.

Time will tell what happens with Figma from here, but the odds are that the quick money has been made, so being patient and waiting for a pullback could be the wise approach if you haven't bought shares yet.

Should you invest $1,000 in Figma right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Airbnb, and Snowflake. The Motley Fool has a disclosure policy.